An auditor obtains knowledge about a new client's business and its industry to:
A. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated.
B. Understand the events and transactions that may have an effect on the client's financial statements.
C. Develop an attitude of professional skepticism concerning management's financial statement assertions.
D. Make constructive suggestions concerning improvements to the client's internal control.
Answer: B
Choice "B" is correct. The auditor should obtain knowledge of the client's business and its industry in order to determine the effect of transactions, events, and practices on the client's financial statements.
Choice "D" is incorrect. Constructive suggestions concerning improvements in the new client's internal control are generally made after the study and *uation of the client's internal control, performed subsequent to planning. Knowledge about the new client's business and its industry is generally obtained during planning.
Choice "C" is incorrect. The auditor should have an attitude of professional skepticism in conducting the engagement, but this attitude is not necessarily related to the auditor's knowledge of the new client's business and its industry.
Choice "A" is incorrect. The auditor should *uate whether the aggregation of known misstatements materially affects the financial statements, but this is done near the audit's conclusion. Knowledge about the new client's business and its industry is generally obtained during planning.